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Of the thousands of hedge funds and other vehicles registered as Securities and Exchange Commission investment advisors, more than 150 have the word "alpha" in their names. But calling yourself alpha and actually generating it are entirely different things.

Putting money into a Standard & Poor's 500-stock index fund would have gained you more than 12% so far this year, while investing in the average hedge fund would have generated just 4.8% in returns, net of fees, through September, according to hedge-fund performance tracker HFR. Even most strategies correlated with equity markets trail the S&P by a wide mark. Put simply, alpha, or the value a manager adds to returns beyond his benchmark, just isn't there. And that's what the typical hedge fund promises investors, in return for its hefty fees.

Hedge funds typically lag behind broader indexes slightly during years with double-digit S&P gains—they do have to hedge, after all—but it's rarely by this much.

Managers across all strategies are concerned about another 2008-like market crash, but in the meantime, they've been hurt by central banks' persistence at keeping interest rates low. Add in volatility and a U.S. presidential election where the top three issues are the economy, the economy, and the economy, and it's clear that hedge-fund managers are more concerned about managing risk than gambling on equities. Investors and other industry observers say that for perhaps the first time since the phrase hedge fund entered the lexicon, hot or gimmicky strategies aren't worth investing in at all. It's the manager that counts.

"It's a return to the roots of the hedge-fund industry, when it was a small group of highly talented stockpickers and fundamental investors," says John Bailey, founder and chief executive of Spruce Private Investors, which invests in 30 different hedge funds for foundations and endowments.

Sure enough, some of the stars of the industry, like Appaloosa Management founder David Tepper and Steve Mandel of Lone Pine Capital, have more than doubled the returns of the S&P this year. While others, like Third Point Capital's Daniel Loeb, haven't been able to beat the broader markets, they've at least generated the double-digit gains that hedge-fund investors expect.

Perhaps it's time, though, to re-examine those expectations. The successful managers, with years of positive track records, are more of an exception now than ever before. Bailey says he and his firm recently conducted a study of rolling hedge-fund returns since the mid 1990s, tracking alpha specifically. His findings?

"You don't want to invest in the average hedge fund," Bailey says. "Hedge-fund industry alpha has been on the decline since the mid-1990s, and is actually trending toward zero."

But Ken Heinz, president of HFR, says this year's poor performance is more a case of growing fears among hedge-fund managers that a far-reaching economic crisis is coming. More managers are emphasizing less risk, even when playing the broader stock market. Third Point's third-quarter letter to investors said the fund matched the market's gain "with significantly less exposure."

Heinz says the decline in interest rates to near zero has also hurt hedge funds' returns.

"Equities are only a portion of what hedge funds are actually investing in," Heinz states. "Right now you're sitting here with record low interest rates." Making money off debt instruments with higher interest rates is gone, he says. "The opportunities to get 15% or 20% [returns] the last few years have not been as plentiful as what they would be in an environment where governments aren't suppressing their rates."

THEN THERE'S THAT WHOLE election you may have heard about. While it's unclear what type of short-term effect on hedge funds an Obama re-election or Romney win might have, the sheer uncertainty of who will be in office on Jan. 20, 2013—and what that might mean for both the Federal Reserve and central banks overseas—has kept hedge funds from stepping too hard on the gas pedal.

"Postelection, we'll have a better view," says Kenneth S. Phillips, founder and chief executive of HedgeMark, a BNY Mellon affiliate that provides risk analytics and managed-account platforms for hedge funds. "The Fed established policies in the U.S. that were not influenced by the elections, and as it got closer to the elections, they could not change those policies because it would have the appearance of playing to the other party."

Once the election is over, Phillips says, investors will be able to go back to trying to identify the managers with the most important, if unquantifiable, skill in chasing alpha: talent.

"Talent is not something that can be easily discerned during a raging bull market that's being accelerated by central-bank intervention," Phillips says.

JOSEPH CHECKLER is a reporter covering bankruptcies for Dow Jones Newswires in New York.